### Other Sites

Front Page Titles (by Subject) CHAPTER VI: the law of costs and the general law of value - Natural Value

#### Also in the Library:

Subject Area: Economics

## CHAPTER VI: the law of costs and the general law of value - Friedrich von Wieser, Natural Value [1889]

##### Edition used:

Natural Value, edited with a Preface and Analysis by William Smart (London: Macmillan, 1893).

##### About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.

### the law of costs and the general law of value

If the statement of the law of costs just laid down be correct, there can be no doubt regarding its relation to the general law of value.

Between costs and utility there is no fundamental opposition. Costs are goods valued, in the individual case, according to their general utility. The opposition between costs and utility is only that between the utility of the individual case, and utility on the whole. Whoever thinks of “utility” without thinking of “costs,” simply neglects, in the utility of one production, the utility of the others. And whoever produces, in the individual case, at the least cost, produces, on the whole, with the highest utility, inasmuch as he thus saves all the opportunities of utility possible, and consequently in the long run utilises all these opportunities to the utmost extent.

Thus where the law of costs obtains, utility remains the source of value. More than this, marginal utility remains the measure of value. The only thing is that utility and marginal utility are no longer determined in a one-sided way within the limits of each particular group of products, but over the entire field of cognate production. Over this field it is always the common productive marginal utility that decides. The result of the productive combination 10a + 10b + 10c possesses the common marginal utility of all productive goods of the class A ten times, and so with the classes B and C. It consequently stands in a definite ratio of value to the product resulting from 10a + 20b + 10c, and this ratio corresponds to the general law of value, according to which separate parts of a stock are to be valued by multiplying the number of items by the marginal utility. Even products which, in outward appearance and destination, are entirely different from one another, if traced back to the productive elements of their manufacture come ultimately into the same value relations as do the separate parts of a stock. A cupboard and a table are in themselves different goods; reduced to their productive factors they are of the same nature, belong to the same class of supply, and receive a corresponding expression of value. The law of costs is a peculiar and complicated conception of the general law of value, used in a peculiar and complicated case, viz. where the connection of goods with one and the same stock is not apparent from their outward appearance, but can only be recognised after reduction to the productive elements of their manufacture.

This statement would be imperfect if we did not add that the law of costs as regards products is by far the most usual form assumed by the general law of value. Products of almost every kind are continually being reproduced, and consequently their value must continually be decided by comparing the amount of the productive supplies with the amount of the productive demand. The vast majority of changes in value are occasioned by the changes which occur in the coming forward of production goods (or in their production, where they are themselves objects of production), as also by technical changes, or changes in the conditions of production which make the quantity of costs necessary to produce the goods greater or less. Thus it happens that variations in the value of products are traceable, in the majority of cases, to some cause which is to be found in production goods. Even in cases where the change of value first arises in the demand and in the products, the effect of this circumstance communicates itself, through the medium of the cost goods, to the cognate products, and causes their value to rise or fall. A product which is “cognate” with a hundred others, will, in all probability, be affected a hundred times by changes in their supply and demand relations, for once that it is affected by a change in its own relations; and all these influences are communicated to it from outside through the cost value. And thus it is that changes in any single supply and demand must pass without leaving any trace, unless they chance to be exceedingly comprehensive, and are, therefore, capable, as against the supply and demand over the whole circle of cognate production, of disturbing the determining marginal utility.

The phenomena of costs are, therefore, a new proof of how greatly the objective conditions of the existence of goods influence the value of goods. How far the value of goods, in its final form of “cost value,” is from being the mirror of that subjective fact from which it is derived—the value of wants! The circumstance that cognate products are produced by different quantities of the same productive elements, brings their subjective valuations into a ratio, the terms of which are derived entirely from the objective conditions of production; while the impulses which call for their emergence, as well as the absolute value amounts of the elements whose multiples enter into the ratio, remain subjective, and thus prove the subjectivity of the source and nature of value.

It was impossible that the influence of costs upon the value of products could escape the observation of economists. None the less has recognition by economic theory of the law of costs remained for long very imperfect. It was conceived of only as a relative law—that the value of products was as the quantity of costs; but as to what was the nature of costs, whence they themselves receive their measure, what absolute amounts might accrue to the value of products,—on these points economists were no more capable of saying anything than they were capable of explaining the numerous contradictions which were inevitable so long as costs were conceived as the final cause of the value of products. Possibly it is the greatest triumph of the theory of marginal utility that it fully explains the obscure conception of costs, with which every other theory had to reckon, and with which no theory could come to any reckoning. The labour theory alone has attempted it, but it has thereby—as we shall go on to show—introduced into theoretic political economy the greatest errors that have ever been perpetrated within its sphere.